A month after Mayor Rudolph W. Giuliani crushed a short, furious walkout by Legal Aid Society lawyers, he has proposed budget cuts that the society says could force layoffs of 25 percent of its staff and set off costly, trickle-down chaos within the criminal-justice system.

But even as judges and some politicians joined Legal Aid’s doomsday view, a city official said that the society could well afford to lose some fat and still maintain its current caseload.

And from those two polar opposite starting points, negotiations over Legal Aid’s future as the city’s primary defender of the indigent are to resume this week between Katie Lapp, the city’s criminal justice coordinator, and Michael Iovenko, the president of Legal Aid.

To fulfill the requirements of its contract with Legal Aid, the city gave the lawyers formal notice last week that it would cancel the contract in 90 days. Ms. Lapp and Mr. Iovenko are to discuss Legal Aid’s new relationship with the city, under the constraints of a reduced budget.

Whatever the final layoffs and budget cuts, Mr. Iovenko and Ms. Lapp agreed that management-heavy Legal Aid would have to fundamentally change how it runs itself.

But another consensus seemed to be emerging as well: that at the end of a tumultuous month that saw the collapse of a strike by angry Legal Aid lawyers in the face of the Mayor’s threat of the organization’s early death, Legal Aid’s solid 28-year relationship with the city has been irrevocably weakened, as has its standing as a voice for the poor on a spectrum of issues.

On Tuesday, the Mayor announced in his package of cuts that he would shrink the city’s annual payments to Legal Aid’s criminal defense and appeals divisions by $12.5 million from a total of $79 million, a 16 percent reduction. Through cuts to other programs, Legal Aid’s services for people facing eviction would lose $760,000.

Legal Aid officials calculate that since four months of the fiscal year have already passed, the cut is equivalent to nearly $19 million from an annual budget.

Legal Aid lawyers handle about 226,000 cases a year, or about 60 percent of the overall caseload. Up to 158 of Legal Aid’s 632 criminal-defense lawyers may be laid off, its officials say.

As Legal Aid’s secretaries, supervisors and junior lawyers brace themselves for pink slips, which Legal Aid officials say could come by mid-November, some judges predict that the cuts will not only cost the city millions of dollars but also strain overcrowded courts and jails, forcing the early release of some dangerous prisoners whose cases have languished.

In short, said Judge Burton B. Roberts, the chief administrative judge of Bronx Supreme Court, “The impact on the criminal justice system would be devastating.”

And, judges and Legal Aid officials say, the cut is lopsided — budgets for the city’s district attorneys’ offices were untouched. At the same time, arrests are jumping, largely because of the Mayor’s insistence on a crackdown of “quality of life” crimes. For the first nine months of 1994, misdemeanor arrests rose 28.9 percent over the same period in 1993, about 17,000 cases more, according to Detective Lisa Guerriero, a Police Department spokeswoman.

But Ms. Lapp, the city’s criminal justice coordinator, defended the falling ax and said fears of huge layoffs and resulting mayhem were overblown. Legal Aid, she said, could keep its current caseload and not have to lose lawyers.

If Legal Aid could afford to give its managers a raise and offer union members a bonus, Ms. Lapp said, referring to events last summer and earlier this month, then certainly fat could be cut from its budget: “It’s consistent with what the Mayor said during the strike,” she said.

She also disputed the conventional wisdom that Legal Aid lawyers are desperately overworked. But should some layoffs be necessary, she said: “I am not confident that they need all the staff they have, to do the amount of work that is out there. The caseload carried by these attorneys is very, very low.”

Robert M. Baum, the chief of Legal Aid’s criminal defense division, said that in some boroughs, Legal Aid lawyers had as many or fewer cases than private lawyers assigned by judges to represent the indigent.

But Mr. Baum said that respective caseloads did not tell the full story. He said studies had shown that Legal Aid lawyers moved their cases up to 40 days faster than private assigned lawyers, and so saved the city money in prison costs.

Speculation has run high that if Legal Aid must make the cuts it has forecast, 30,000 of its cases will be turned over to assigned lawyers, who the Mayor said this summer were costing the city far too much.

Patricia Bath, a spokeswoman for Legal Aid, said that transferring those cases to lawyers in the Assigned Counsel Plan would ultimately cost the city $31.6 million.

Another judge who said he was concerned about the proposed cuts, James A. Yates, Acting Supreme Court Justice, said that something was being lost in all the number-crunching: the value placed on the quality of representation that Legal Aid offers. While not discrediting the lawyers in the Assigned Counsel Plan, who are mostly solo practitioners, Judge Yates said that Legal Aid provided clients with investigative services, interpreters, social-service liaisons, an appeals division and class-action litigation, as well as a hierarchy that trains new lawyers.

And while those young lawyers are indeed inexperienced, they are essential to the vaunted idealism of Legal Aid, said Michael Z. Letwin, the president of the Association of Legal Aid Attorneys, which represents nearly 1,000 staff lawyers.

“There’s a lot to be said for the new blood — they’re the most effervescent and that’s what they bring to clients,” he said. They will be among the first to be laid off.

Ms. Bath said that the 1994 class of 64 Legal Aid fledglings had been plucked from about 2,400 applicants. Forty percent are minority lawyers and 60 percent are women.

And recruiting at law schools for future classes has stopped. “We have nothing to offer them,” said Ms. Bath.

Labor Relations Board to Investigate City’s Role in Negotiations on Legal Aid Contract

By LAWRENCE VAN GELDER

The National Labor Relations Board is investigating whether the Giuliani administration violated Federal labor law by insisting that the Legal Aid Society include a no-strike clause in its new contract with the city, a Federal labor official said yesterday.

Daniel Silverman, the regional director of the Labor Relations Board, said in an interview that his agency had begun an inquiry into the city’s role in the tumultuous contract negotiations between the society and its lawyers. The lawyers are employees of the Legal Aid Society, not of the city, Mr. Silverman said.

“We wish to determine whether the City of New York, by conditioning the contract with the Legal Aid Society on the Legal Aid Society’s prohibition of strikes by Legal Aid Society employees, intruded into the collective-bargaining process,” he said.

Mr. Silverman said preliminary inquiries had been addressed to Paul Crotty, the city’s Corporation Counsel, and he expected the matter to be resolved soon.

Lorna Goodman, a spokeswoman for Mr. Crotty, said yesterday, “We just received notification, and we’re studying the issues.”

Commenting on the board’s action, Michael Z. Letwin, the president of the Association of Legal Aid Attorneys, which represents nearly 1,000 staff lawyers, took note of Mr. Giuliani’s past as a United States Attorney. “We think it’s important that every mayor obey the Federal law,” he said. “This Mayor certainly has a lot of experience with Federal law, and we assume he will comply with it.” Mr. Silverman said that if the National Labor Relations Board in Washington determined that relief would be appropriate, a court could issue an injunction against the city. The city could be exposed to a lawsuit for damages on behalf of the Association of Legal Aid attorneys, he said.

On Monday, two days after Legal Aid’s staff lawyers went on strike, the Mayor sent a letter to Michael Iovenko, the society’s president, saying, “In light of the society’s inability to perform the contract, the city terminates the contract effective immediately.” The next day the city announced that any future arrangements with the Legal Aid Society would have to include a no-strike clause.

A meeting on a new contract between the Legal Aid Society and the city took place yesterday between Mr. Iovenko and Katherine Lapp, the Mayor’s criminal justice coordinator. Jacqueline Barnathan, a spokeswoman for the Mayor, said Ms. Lapp told her it had been a “good meeting” with a “cooperative mood.”

After Legal Aid lawyers returned to work on Wednesday, the Mayor said he would not restore the nonprofit organization to its position as primary defender of the poor in the city’s teeming courts. Under a contract that had been in effect for 28 years, the society was getting $79 million a year from the city.

Seeking a 4.5 percent wage increase, the lawyers, whose average salary is $45,000, walked off the job last Saturday when their contract with the society expired. Mr. Giuliani confronted them with an ultimatum: return to work or be replaced. On Wednesday night, after further negotiations with the society, the lawyers voted to return to work.

They agreed to accept bonuses of 2 percent in each of the next two years. Management agreed to binding arbitration on the issue of health-care premiums and agreed to joint committees to study workloads in some of its offices. The two-year contract between the union and the society contains a standard agreement not to strike during its term.

On Thursday, under pressure from the Mayor, the society — pending negotiations with the city on a new contract — agreed to rescind raises of 4.5 percent that had been granted earlier to 203 supervisory personnel.

Although Mr. Silverman declined to go into detail about the board inquiries, he noted that the agency has the authority to begin such an investigation on its own initiative. “The N.L.R.B. has the authority to proceed on its own,” he said. “We do not need any party to come to us.” He said, for example, that where a state “is intruding into the collective-bargaining process, which is governed by Federal law, Federal power pre-empts state action.”

The eleventh-hour contract agreement on Tuesday between striking lawyers and the Legal Aid Society came about in an atmosphere of fear, as both labor and management came to believe that they were no longer negotiating to reach a deal on a new contract, but to save the society itself.

In the end, it was Sheldon Silver, the Speaker of the State Assembly, the second most powerful Democrat in the state, who played midwife to the tentative agreement, persuading both sides to take Mayor Rudolph W. Giuliani’s threat to dismantle Legal Aid seriously.

But it was Mr. Giuliani’s ultimatum to the striking lawyers — to return to work the next morning or never work for the city again — that was the great catalyst for action.

“The Mayor’s ultimatum scared the bejesus out of everybody,” said Robert Batterman, a lawyer who represented Legal Aid management at the meetings. “I called the union lawyer, and I said there isn’t going to be anything to put back together if we don’t get the troops back to work tomorrow morning.”

Before the strike, Legal Aid was under contract with the city to provide lawyers to about 60 percent of the indigent defendants in the city’s packed criminal courts. It remained unclear yesterday whether the Mayor would allow the society such a broad role in the future.

Mr. Silver, who began his career as a law clerk, said he intervened because he was worried about the effect of a prolonged strike on an already overburdened court system. In addition, he said, he did not want to see the Mayor gut and revamp the city’s system for defending the indigent in the middle of a labor crisis, without any hearings in the Assembly.

Tuesday began poorly for the strikers. The walkout was barely felt in the courts as private lawyers handled new cases at arraignments, and few labor leaders showed up at an 11:30 A.M. rally in support of the strike on the steps of City Hall.

Earlier that morning, the executive committee of the Legal Aid Society had met to wrestle with Mr. Giuliani’s decision the previous day to respond to the strike by simply canceling the city’s contract with the society. They discussed trying to bring in a mediator to settle the strike and talked about where they might find money in their budget for a wage settlement.

But the rumor that the Mayor was going to take further steps against the society that afternoon hung over the meeting. “It was kind of a dismal scene,” said Michael Iovenko, the society’s president.

Meanwhile, the Mayor was meeting at City Hall with his top advisers: Dennison Young, his personal lawyer; Paul Crotty, the Corporation Counsel; Abraham Lackman, the Budget Director, and Katherine Lapp, the criminal justice coordinator. Rather than wait out the strike, Mr. Giuliani decided to step up the pressure, his aides said.

He would demand the lawyers return to work or be barred from working for the city in the future. He would also demand that any new contract with between the city and the Legal Aid Society have a no-strike clause and allow the city the flexibility to contract with other lawyer groups to defend the indigent.

Mr. Giuliani announced his ultimatums at a news conference at 2:30. Copies of his statement were faxed to the union and the society. Within an hour, Michael Z. Letwin, the president of the union, met with Mr. Iovenko and Thomas K. Brome, the society’s vice president, in Mr. Brome’s midtown law office to talk about possible ways to resolve workload complaints and to improve minority hiring, two sticking points in the talks.

“The Mayor’s ultimatum I think in effect brought about the end of the strike,” said one Legal Aid executive, speaking on the condition of anonymity. “What else would there have been to bring them to this point of having a meeting with us the day after they go on strike?”

About an hour later, Mr. Batterman, the management lawyer, who was tied up in the negotiations over the National Hockey League strike, telephoned Daniel Engelstein, the union’s counsel, and laid out a new offer: the same package of 2 percent bonuses in each year of the two-year contract, plus an agreement to let an arbitrator solve the disagreement over health care payments.

At the same time, Mr. Silver and his aides were trying to set up the meeting in their offices. Both sides arrived at about 6:30, locked themselves in a conference room and began talking.

Union officials acknowledged yesterday that the Mayor had warned them last week he would move to replace the Legal Aid Society if its members struck. But they dismissed the warning as a bluff intended to intimidate them. “We knew this threat was out there before we did this,” Mr. Letwin said. Nonetheless we stood up for what we believed in, and we got a better contract.”

Striking Legal Aid lawyers returned to work yesterday, but Mayor Rudolph W. Giuliani insisted that he would not restore the nonprofit Legal Aid Society to its position as the primary defender of the poor in the city’s packed courts.

Contending that the city should not be subject to lawyers’ strikes, Mr. Giuliani said he would be looking for alternative arrangements to the Legal Aid Society in some city courts, suggesting that new options could be tried in Queens and Staten Island.

“We will not be having a primary, singular service deliverer for accused criminals who want representation or even indigents,” the Mayor said.

Several leaders of the city’s municipal unions, who had watched the tug of war, expressed relief that the strike had ended without broadening into a long, polarizing labor confrontation. But one union leader conceded that the Mayor had won a victory that would make bargaining more difficult next year when all municipal contracts come up for renegotiation.

“It makes our fight tougher,” said Arthur Cheliotes, the head of Local 1180 of the Communications Workers of America, which represents about 10,000 city administrators.

Although Legal Aid lawyers work for the Society and are not city employees, the Society gets $79 million a year from the city, and the Mayor had said he would not accept wage increases during a time of fiscal hardship. Instead, he said he would cut off the city’s 28-year contract with the Legal Aid Society.

Disillusioned and grim Legal Aid lawyers spent much of their day back at work yesterday arguing among themselves, many admitting that their strike had boomeranged to the advantage of the Mayor. [ Page B7. ]

The Mayor declined to endorse the tentative contract agreement hammered out Tuesday night between the lawyers’ union and the Legal Aid Society, under which the lawyers would receive bonuses of 2 percent in each of the next two years.

“If there’s room for a raise then that would mean there’s probably room for a reduction in the amount of money that we supply for the Legal Aid Society,” Mr. Giuliani said, “unless it can be demonstrated to us that’s going to be done through productivity, with the productivity first demonstrated and produced rather than paid for up front.”

At a union meeting last night, the lawyers voted 544 to 150 to accept the agreement. Participants said there had been emotional speeches both to accept the contract and to return to the strike.

“We’re the best lawyers in this city,” said Michael Z. Letwin, the president of the lawyers union. “We take pride in the fact that these lawyers represent poor people not for the money but because we believe in it.”

The lawyers, seeking a 4.5 percent wage increase over two years, walked off the job Saturday after their contract expired. But confronted with an ultimatum by the Mayor to return to work or be replaced, union leaders agreed to a deal Tuesday night that was close to the offer they had originally rejected.

The average salary of the lawyers is $45,000 a year.

The bonuses in the new contract are similar to what the Legal Aid Society had previously offered. But while the management had sought higher payments by union members for health care, medical payments would remain at about current levels in the first year and then be submitted for arbitration the following year.

“I think this is a much better package than the original,” said Mr. Letwin, the union president. He said his members also won some non-economic concessions such as a union management committee to examine workloads in some areas.

Still, it was far from clear whether Mr. Giuliani would approve the new terms, and whether Legal Aid would end up with anything near the city financing it had before the strike caused the Mayor to terminate the city’s contract. Last year, the society received $79 million from the city for criminal work alone and provided the lawyers to represent about 60 percent of indigent defendants.

The Mayor said yesterday that the city might not provide enough money to Legal Aid to pay for the bonuses it had negotiated with the lawyers and the raises planned for its managers. “It may very well be that the city can save money by not funding all that,” he said, adding, “It leaves a lot of options open.”

The Mayor did not explain further how he would find other lawyers for the poor, and Katherine N. Lapp, his criminal justice coordinator, said it was “premature” to say what options would be considered. On Monday, the Mayor had said the city could consider setting up a public defenders office or contracting for lawyers with the city bar association.

Paul S. Goldstein, the president of the Queens County Bar Association, said that he had had no inquiries from the Giuliani administration. “We have an active private bar which may distinguish us from other counties,” he said. “But to contract with us on a fee basis, I don’t know, because we’d have to see what they’re prepared to spend.”

Many indigent defendants are already represented by private lawyers who charge the city by the hour under what is called the Assigned Counsel Plan. Their bills were expected to reach $50 million this year. But several months ago, the Giuliani administration had proposed giving the bulk of that criminal caseload to the Legal Aid Society in a cost-saving effort.

In a letter sent to the Legal Aid Society last night and released publicly by the Mayor, Ms. Lapp said the administration would also require that any new agreement with the Legal Aid Society include a provision granting the city the right to impose penalties if lawyers strike and a clause requiring “that lawyers who breach their ethical obligations to clients be terminated.” Mr. Giuliani had called the strike a breach of ethics.

Ms. Lapp has said that the lawyers who return to work will be paid at the rate of the existing contract while the administration negotiates with the Legal Aid Society. She said, “This payment arrangement can continue only until such time as either new contracts are negotiated or we are unable to amicably agree upon future contractual relationships.”

Pat Bath, a spokeswoman for the Legal Aid Society, said that if the city substantially reduced the size of its contract with the society, it might have to dismiss many of its 1,131 lawyers. “He would be telling us we won’t have as much work and then we wouldn’t need as many people to do as much,” she said.

But Mr. Letwin, the union leader, expressed confidence that Legal Aid would still prove the best alternative for representing indigent clients. “We think it’s clear that the society’s the most cost-effective and best quality in the city,” he said, “and I think we have a lot of allies on that.”

The showdown between the Mayor and the Legal Aid lawyers came at a time when the city faces a $1 billion budget gap this year and multi-billion-dollar annual deficits for the foreseeable future. Mr. Giuliani used the strike to emphasize that he would be granting no wage hikes for several years, unless paid for through increased worker productivity.

Ruth W. Messinger, the Manhattan Borough President who had rallied to the side of the striking lawyers, yesterday accused the Mayor of using the lawyers’ dispute to distract the public. “There are major budget problems afoot and perhaps the Mayor’s looking for a way to keep his and everyone’s mind off of them,” said Ms. Messinger, a Democrat who is considered a potential challenger to the Mayor in 1997.

Faced with an ultimatum by Mayor Rudolph W. Giuliani, striking lawyers reached a tentative contract agreement with the Legal Aid Society late last night and agreed to return to work this morning, union and management officials said.

Neither side would disclose the details of the accord, and it was not clear whether the deal would be acceptable to Mr. Giuliani, who yesterday demanded that any new contract with the lawyers contain a no-strike clause, with automatic penalties for walking off the job.

The talks resumed at 7 P.M., just a few hours after Mr. Giuliani told the striking lawyers, who represent indigent defendants in New York City courts, that they must return to work today or risk being barred from working for the city in the future. By 10:30 P.M., the two sides had reached an agreement.

In taking a tough stance with the Legal Aid lawyers — who do not even work directly for the city, although the society gets $79 million a year in city financing — Mr. Giuliani was also sending a message to the 210,000 municipal workers, underscoring his stance that the city will not be able to afford raises for anyone. [ News analysis, page B5. ]

About 1,100 lawyers had walked off the job, voting Monday afternoon to turn down the Legal Aid Society’s offer of a two-year contract with no permanent wage increases.

Since 1966, the society has provided legal representation to the poor under a contract with the city. Mr. Giuliani responded to the strike by canceling the contract.

Commenting on the tentative agreement last night, Michael Z. Letwin, the president of the Association of Legal Aid Attorneys, the lawyers’ union, said: “It’s a new offer. It’s not everything we would have liked, but in certain areas there are significant improvements.”

Mr. Letwin said the union would vote on the pact tonight.

A spokeswoman for the society, Pat Bath, said: “We have reached some understandings with the union, subject to the Mayor’s approval. The attorneys will be back at work tomorrow.”

The negotiations between the society and the lawyers were resumed last night in the downtown office of Sheldon Silver, the Speaker of the New York Assembly, after a day of protests by strikers and threats from the Mayor. No one from the administration was present, although Mr. Silver said they had been invited.

Cristyne Lategano, the Mayor’s press secretary, said last night that Mr. Giuliani had not seen the agreement and was still demanding a new arrangement between the society and the city that would prohibit strikes in the future.

“We’re pleased they recognized their ethical obligation to return to work, but we’ll still have to review a brand new contract with Legal Aid,” she said.

Mr. Silver, a liberal Democrat from Manhattan, said he intervened in the dispute because he was concerned about the chaos that could develop in the courts. The state, which has overall responsibility for the court system, pays part of the bill for Legal Aid.

At courthouses around the city, lawyers and judges said the effects of the strike by the union, the Association of Legal Aid Attorneys, were just beginning to be felt yesterday. Private lawyers were hired to take over arraignments at Manhattan Criminal Court, for example, and supervisors from the Legal Aid Society handled some cases, though they were not sure how long they could do so.

Before the tentative agreement was announced last night, Mr. Giuliani had insisted that any future contract with the Legal Aid Society must insure that the city has the flexibility to contract with private law firms, bar associations or other groups of lawyers besides the society to defend the indigent.

Mr. Giuliani’s stand was clearly intended to send a message to the city’s major municipal unions as his administration enters a new round of bargaining while trying to close a $1 billion budget gap. The Mayor has said the city cannot afford any raises in the next two years unless they are financed by increased productivity or other union concessions.

Mr. Giuliani said he refused the society’s request last week for additional money above its contract to cover a wage settlement because it would be a fiscal disaster for the city.

“If they don’t return to work tomorrow,” he said, “then what we will do is we will go ahead and enter into legal arrangements and binding contracts with other groups and they will not be part of it. If you look at the net effect of what a four percent increase would mean for the city, not just for those services, but what it means to all other negotiations, it would be a catastrophe for the city to agree.”

The union representing the lawyers had sought a 4.5 percent raise over two years from the society, which in turn offered a package with no permanent wage increase but rather two bonuses amounting to 2 percent of annual salary in each year of a two-year contract. The management also had sought higher payments from the union for health care. The average Legal Aid lawyer makes $45,000 a year.

But Mr. Letwin, the union president, said the wage increase he was seeking would cost $3 million to $4 million and could easily come out of the society’s current budget — a $140 million spending plan raised from state, city and Federal grants. He pointed out that the society’s supervisors gave themselves a raise of 4.5 percent earlier this year.

“All we are looking for is the same funding that the supervisors got,” he said.

Legal Aid lawyers tend to be young and typically stay on the job about six years. Each year, the society gets about 2,400 applicants from all over the United States and fills about 75 jobs.

Yesterday Chandra Gomes, 35, of Bellerose, Queens, a Legal Aid lawyer for eight years, said the job was the only thing she had ever wanted to do with her law degree. But she said, she had bills to pay, just like anyone else.

“They’re not offering any kind of increase,” she said. “I drive a car that’s 19 years old. We work Christmas and Thanksgiving and weekends, and we don’t get any compensation for that.”

Reaction to the strike was muted from the leaders of other municipal unions and it was unclear how much support the striking lawyers were getting. Stanley Hill, the executive director of the District Council 37 of the American Federation of State, County and Municipal Employees, said he was quietly urging the union and management to go back to the bargaining table. But he added he did not want the strike to affect his talks with the Mayor on the next contract for his workers.

“The workers should not be fired,” he said. “This should not be blown up. This is a very sensitive situation. I’m urging that both sides try to sit down and work this thing out.”

Photo: Striking lawyers confronting people who crossed the picket line at Legal Aid Society offices in Brooklyn. (Linda Rosier for The New York Times) (pg. B4)

Mayor Rudolph W. Giuliani, setting up one of the biggest labor showdowns of his administration, moved yesterday to replace the Legal Aid lawyers who walked off their jobs in a bid for higher wages.

Just hours after the lawyers formally voted to strike, Mr. Giuliani terminated the city’s contract with the Legal Aid Society, which is the direct employer of the lawyers. The city pays the society $79 million annually to provide the lawyers to represent about 60 percent of the indigent defendants in the city’s packed courts.

The lawyers do not negotiate with the city and officially struck against the Legal Aid Society. But Mr. Giuliani, who has said he wants to hold down the wages of all city workers to balance the budget, said that the lawyers too would have to recognize the city’s fiscal difficulties.

Mayoral aides said they had been in contact with administrators of the city’s courts and would have additional private lawyers on hand today to handle arraignments. They said they would seek a more permanent substitute for the Legal Aid Society’s 1,131 lawyers over the next few weeks.

“As I think we all know, there are many lawyers in this city that are looking for work and maybe they can have options that they didn’t have,” Mr. Giuliani said at a news conference at City Hall shortly after the strike vote. “This is not a monopoly that the city should allow itself to kind of be frightened by.”

Mr. Giuliani said his options included such possibilities as a contract with the City Bar Association, creation of a Public Defenders office, or expansion of a program for using private lawyers. Several months ago mayoral aides said they wanted to curtail that program because it is undersupervised and has, on occasion, been abused.

It was unclear last night what Mr. Giuliani would do if the Legal Aid lawyers offered to end their strike on terms the Mayor viewed as acceptable, or whether his strong stand was a tactical move intended to pressure the union to resolve the dispute on the Mayor’s terms.

The walkout of the lawyers and the Mayor’s quick reaction were just the latest in a series of crises in the city’s criminal justice system, which has been hard pressed to handle overcrowding in the courts and jails caused by the Mayor’s crackdown on crime and by a shrinking budget.

The administration sought to minimize the effect of trying to operate without the Legal Aid lawyers. “It might be a little bumpy, but the truth is I think it will move reasonably well,” said Dennison Young, Mr. Giuliani’s counsel.

The striking Legal Aid workers vowed a long battle against the Mayor. “This is sort of strike-breaking at its worst,” said Michael Z. Letwin, president of the Association of Legal Aid Attorneys, the lawyer’s union. “I think this is going to backfire. We are the first ones to stand up to this bully and we hope New Yorkers will stand up and say, ‘Enough.’ “

Officials of the Legal Aid Society planned an executive committee meeting this morning to assess where they stood. “At this point, to be honest with you, will the striking attorneys have jobs? I don’t know,” said Pat Bath, a spokeswoman for the Legal Aid Society. She said that 780 of the organization’s 1,131 lawyers handle criminal cases or criminal appeals under the agency’s contract with the city. The rest of the lawyers handle civil matters, juvenile and family court cases.

Arguing that the Legal Aid Society could not meet its commitments, The Mayor cut off the Legal Aid contract yesterday a few hours after the lawyers, who walked off the job when their contract expired Friday at midnight, formally voted to strike. On their first ballot at the Loeb Student Center on the New York University campus, the lawyers voted 482 to 304 to strike, with 6 abstentions. On a second ballot, they voted 681 to 56 for the strike, with five abstentions.

That offer provided no wage increase — the union had been seeking 4.5 percent over two years — but did provide bonuses of 2 percent of annual salary in each year of a two-year contract. The average Legal Aid lawyer makes $45,000 a year.

While the lawyers negotiate their contracts with the Legal Aid Society and not with the city, members of the Giuliani administration said they were watching the talks closely because they did not want the lawyers to receive wage increases that could be viewed as setting a pattern for municipal contracts next year.

Faced with a $1 billion budget gap, the administration has been seeking in recent days to negotiate $200 million in givebacks on health care benefits with the municipal unions and a new severance package to remove as many as another 7,000 workers from the city payroll.

Mr. Giuliani said yesterday that, because of the city’s dire fiscal situation, it could be more than two years before he would be able to offer any raises to municipal workers and that he expected the Legal Aid lawyers to understand that as well.

“The city does not have money to increase salaries this year,” he said last night as he was leaving City Hall, where he was confronted by striking union members. “They should know that.” Mr. Giuliani also criticized the managers of the Legal Aid Society for having granted themselves raises.

The society, which has a $140 million budget raised through state, city and federal funds and private philanthropy, had told its lawyers that fiscal trouble made the city “unwilling to make any money available for increases in compensation and benefits for the new contract.”

Mr. Letwin said that the wage settlement his union had been seeking would have cost $3 million to $4 million and could have come out of the society’s budget without seeking additional help from the city.

Mr. Letwin accused the Mayor of trying to imitate President Ronald Reagan, who dismissed striking air controllers from the Professional Air Traffic Controllers Organization in 1981. The union was later disbanded. Mr. Letwin said the Mayor, who was in the Reagan Justice Department at the time, “proudly takes credit for breaking PATCO in 1981, one of the most infamous anti-democratic steps ever taken in labor history.”

Mr. Giuliani said yesterday that he had not been the architect of the Reagan plan on dealing with the air traffic controllers, but had been present at some administration meetings and thought President Reagan was correct because public employees take an oath not to strike against the Federal government. He said the Legal Aid situation was not analogous because the lawyers are not government employees.

The next step in the confrontation was unclear last night. Mr. Giuliani appeared to leave a door slightly ajar to resume the contract with Legal Aid. Asked whether the society’s role was finished, he said, “That’s it for Legal Aid until and unless Legal Aid can comply with its obligations under the contract.” Asked at another point whether the strikers could return to work, the Mayor said: “I don’t see any sense on their part that they want to do that. So as far as I’m concerned I can only react to what they have done.”

Mr. Giuliani, despite tough talk, has generally reached amicable settlements with city unions, and he sought to characterize this confrontation as a “contractual issue” with the Legal Aid Society and not a labor dispute.

Aides to the Mayor said that courts would turn most immediately to private defense lawyers who already serve 40 percent of the indigent defendants in the city. The lawyers are part of a loosely organized program called the Assigned Counsel Plan. The decision to increase the use of such lawyers was a sharp about-face for the administration, which had just embarked on a test program designed to sharply cut the use of such lawyers in favor of Legal Aid.

Mr. Giuliani suggested yesterday that over the long term, the city could find other arrangements to provide criminal defense lawyers to the poor — possibly by contract with the city bar association.

Administration officials said that despite terminating the contract with Legal Aid, they would insist that any lawyers already involved in a case follow it through to its conclusion, and that they would go to court to compel the lawyers to do so if they refused. “The cannon of ethics says that you can’t abandon cases,” Mr. Giuliani said. “So I don’t know where lawyers come off striking. And here they are abandoning cases for an entire city. I’m not going to let them do that.”

Mr. Letwin said the striking lawyers would continue to represent their clients in cases that had already gone to trial.

Photos: After voting to push ahead with a strike yesterday, lawyers working for the Legal Aid Society marched to City Hall for a demonstration.; Legal aid lawyers counting strike ballots yesterday. From left were Nancy Ginsburg, Shanti Narra, Bob Zuss, Dennis Boyd and Tom Perry. The final vote came to 482 in favor of striking, 304 against. (Photographs by Jose R. Lopez/The New York Times) (pg. B3)